What The Restart Of Student Loan Payments Means For Your Taxes
There’s one piece of good news for student loan borrowers bummed out by the resumption of their bills this fall: They may be eligible for a break on their 2023 taxes.
The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt.
During the pandemic-era pause on student loan bills and interest accrual, which spanned more than three years, most borrowers with federal loans lost their eligibility for the break because they weren’t making payments on their debt, and most loans were set to a 0% interest rate.
“You can claim the student loan interest deduction based only on amounts actually paid,” said higher education expert Mark Kantrowitz.
Interest on federal student loans began accruing again in September, and the first post-pause payments were due in October. That means borrowers could have three or four months’ worth of payments to deduct for 2023, which may reduce their tax liability. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the tax break.
Here’s what else borrowers need to know:
Look Out For A 1098-E From Your Servicer
Your lender or student loan servicer reports your interest payments of $600 or more to the IRS on a tax form called a 1098-E, and should provide you with a copy, too. If you don’t receive the form, you should be able to get it from your servicer.
Income, Employer Aid May Reduce Eligibility
“Depending on your tax bracket and how much interest you paid, the deduction could be worth up to $550 a year,” Kantrowitz said.
The deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it. There are income limits, however.
The deduction starts to phase out for individuals with a modified adjusted gross income of $75,000, and those with a MAGI of $90,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $155,000, and those with a MAGI of $185,000 or more are ineligible.
“Borrowers’ eligibility for the deduction may also be reduced if their employer made payments on their student loans as a work benefit,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
Lawmakers Want To Expand Break
House lawmakers introduced a bill this month to expand the student loan interest deduction from $2,500 in annual interest to $10,000. Under the proposed law, eligible borrowers could also claim an extra $500 deduction for each dependent, and they’d be able to deduct all student loan payments, not just the interest portion.
The deduction’s $2,500 cap hasn’t been raised since 2001, despite the fact that student borrowers’ balances have ballooned.
To view CNBC‘s news video ‘ Student Loan Forgiveness Is A Pretty Transparent Exercise In Vote Buying‘, click on the the arrow below.
Source: CNBC
